Commercial REITs to consider in 2017

Commercial REITs to consider in 2017

Two Canadian REITs offer reliable opportunities (with yields of at least 4 per cent) for enterprising Canadians who are looking to diversify into commercial properties this year.

In a recent analysis for The Motley Fool Canada, markets observer Joseph Solitro noted that commercial REITs provide the advantage of a monthly income stream without the stresses of managing a purchased residential property or operating as a landlord.

One of the best choices available is Agellan Commercial Real Estate Investment Trust (TSX:ACR.UN), a fundamentally reliable REIT which holds properties in both Canada and the United States.

“As of December 31, 2016, its portfolio consisted of 34 industrial, office, and retail properties totaling approximately 5.9 million square feet of gross leasable area,” Solitro wrote. “Agellan pays a monthly distribution of $0.06458 per unit, equal to $0.775 per unit on an annualized basis, and this gives its stock a yield of about 6.7% at today’s levels.”

“I think its very strong growth of adjusted funds from operations (AFFO), including its 12.9% year-over-year increase to $0.965 per unit in 2015 and its 11.5% year-over-year increase to $1.076 per unit in 2016, the ongoing improvement of its AFFO payout ratio, including 72.1% in 2016 compared with 80.3% in 2015 and 90.7% in 2014, and its growing property portfolio which will help drive future AFFO growth, including its addition of two net new properties in 2016, will allow it to maintain its current distribution rate for decades or allow it to announce a hike whenever its management team so chooses.”

Another good selection is CT Real Estate Investment Trust (TSX:CRT.UN), one of Canada’s largest owners and managers of commercial real estate.

“As of December 31, 2016, its portfolio consisted of 303 predominantly retail properties located across every province and two territories that total approximately 24.7 million square feet of gross leasable area,” Solitro explained. “CT currently pays a monthly distribution of $0.05833 per unit, equal to $0.70 per unit on an annualized basis, and this gives it a yield of about 4.7% today.”

“CT may have a lower yield than Agellan, but it offers something that Agellan does not: annual distribution increases. It has raised its annual distribution every year since it went public in 2013, which puts its streak of annual increases at three, and its 2.9% hike, which was effective for January of this year, has it on pace for 2017 to mark the fourth consecutive year with an increase.”